What Happens to Your Student Loans When You Die?

When a borrower passes away, the fate of their student loans becomes a significant concern for their loved ones and estate. The outcome is not uniform; it hinges substantially on the loan’s classification, whether it is a federal or a private loan, and the specific terms outlined in the loan agreement. Understanding these distinctions helps families navigate the financial landscape during a difficult time. This article provides clarity on what generally happens to student loans after a borrower’s death, detailing the policies for various loan types and the necessary steps to take.

Federal Student Loan Discharge

Federal student loans are typically discharged, or forgiven, upon the death of the borrower. This policy applies to Direct Loans, Federal Family Education Loan (FFEL) Program loans, and Perkins Loans. Once the discharge is approved, no one, including the borrower’s estate, co-signer, or spouse, is responsible for repaying the remaining balance.

To initiate this process, the loan servicer or the U.S. Department of Education must receive acceptable proof of death.

Federal student loan discharge due to death has specific tax implications. For deaths occurring after December 31, 2017, and before January 1, 2026, the discharged amount is not considered taxable income for federal income tax purposes under the Tax Cuts and Jobs Act of 2017. This temporary exemption means that the deceased borrower’s estate or beneficiaries will not incur a federal tax liability on the forgiven debt during this period.

Private Student Loan Responsibilities

Private student loans are distinct from federal loans, and their policies regarding a borrower’s death can vary considerably by lender and the specific terms of the loan agreement. Unlike federal loans, there is no universal requirement for private lenders to discharge debt upon the borrower’s death. Some private lenders may offer death discharge, which would release the loan obligation, but this is not guaranteed and is less common than with federal loans.

The presence of a co-signer is a key factor for private student loans. If the loan has a co-signer, that individual typically becomes solely responsible for the full outstanding loan balance following the primary borrower’s death. However, for private student loans originated after November 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 generally requires lenders to release co-signers from their obligation if the primary borrower dies. For loans taken out before this date, the co-signer’s liability remains dependent on the specific loan agreement.

If there is no co-signer on a private student loan, the debt typically becomes an obligation of the borrower’s estate. In such cases, the estate’s assets may be used to repay the debt before any remaining assets are distributed to heirs. It is important for families to review the deceased borrower’s specific private loan agreements or contact the private lender directly to understand their particular policies and any potential liabilities.

Parent PLUS Loan Discharge Conditions

Federal Parent PLUS loans, while being federal loans, have specific discharge conditions related to death that differ from other federal student loans. A Parent PLUS loan can be discharged if either the parent borrower who took out the loan dies or if the student on whose behalf the loan was taken dies. This dual discharge condition helps families.

If the student for whom the Parent PLUS loan was borrowed passes away, the parent borrower is no longer responsible for the loan balance. Conversely, if the parent borrower dies, the loan is discharged, and the student is not held responsible for the debt. To process this discharge, proof of death must be submitted to the loan servicer.

This unique provision for Parent PLUS loans ensures that the financial burden does not transfer to other family members in the event of such a loss. The U.S. Department of Education will not pursue repayment from surviving spouses or other family members. However, if a Parent PLUS loan was refinanced into a private loan, it loses its federal protections, including the death discharge benefit.

Notifying Loan Servicers and Required Steps

Upon the death of a student loan borrower, notifying the relevant loan servicers is a necessary step to initiate the discharge process. The first action involves identifying all loan servicers associated with the deceased individual’s student debt. This can often be determined by reviewing financial statements, credit reports, or other personal financial records.

Once identified, the representative of the deceased’s estate or a family member should contact each loan servicer directly. Most servicers can be reached by phone, and they will provide specific instructions on how to proceed. It is helpful to have the deceased’s social security number and loan account numbers ready for this communication.

The primary document required for a death discharge is typically an official death certificate. Servicers usually accept an original or certified copy. For federal Direct Loans, alternative documentation like a letter from a clergyman or funeral director, or verification from a county clerk’s office, might be accepted if a death certificate is unavailable. This documentation should be submitted to the servicer through their specified method, which may include mailing, faxing, or uploading via a secure online portal.

After submitting the required documentation, the loan servicer will review the information. While processing times can vary, a federal loan discharge typically takes some time, potentially ranging from a few weeks to a few months, with some reports indicating 60 to 90 days. Once the discharge is complete, the servicer will issue a formal notification confirming that the loan has been forgiven. Payments made after the date of death are generally returned to the estate.